Opinions needed! Typical Metrics for a SFH cash-flowing rental

[Jimmy O'Connor]

Hello again Bigger Pockets Ethos!

I am currently in need for some data from investors in the Philly and Delaware County Marketplace for rentals. I currently have newer investors, who I feel, are over allocating expenses for single family rentals (typically 3 bed, 1 bath, no central AC units) to the point where it is becoming impossible to find them a deal that cash flow when they run their numbers.

I'm curious to gather the opinions and formulas to start introducing alternative calculations from seasoned investors for typical expenses like insurance, mortgage, maintenance, capex (if that is not already included in maintenance), property management, etc. 

[John Knisely]

@Jimmy O'Connor some things you can estimate with pretty strong certainty. If you have not talked to any local property managers I would definitely recommend it, they are usually pretty up front about their rates. 

Monthly management rates vary from 5-10% typically with a 1 month lease up cost. So if you have a 2 year tenant add another 0.5% to that. 5% side of the spectrum for the higher end/larger buildings/higher gross rents,.

For CapEx- I would put real numbers to it as much as possible. If the water heater has  3-5 years left on it, estimate that replacement cost in 3-5 years, same with roof, furnace etc. Basically you are escrowing rental income for these major expenses. Talk to a roofer to see what the roof replacement/recoating might cost all said and done (2.5-15k depending on property size and roof type). It's hard to just use a blanket percentage of rental income without understanding the asset condition and class.

Insurance- Insurance agent can get you a ballpark on this pretty easily especially for a run of the mill 3/1 rowhome. Most would be happy for the potential business if you tie them in with your investor clients. Location specific of course for properties in proximity to hazard areas.

Rules of thumb are nice for napkin calculations, but its definitely worth drilling down. I know the struggle. I have dealt with investors who are missing opportunities due to over-conservatism. Best thing to do is encourage them to stop estimating and pick up the phone to talk to actual industry individuals for some real numbers!